This annual examination by US government agencies of the
threat of foreign
economic collection and industrial espionage is conducted in compliance
with Congressional mandate. Information obtained during the past year
showed no reduction in attempts by foreign government, corporations,
and
individuals to acquire US proprietary economic information:

The increasing value of trade secrets in the global and domestic
marketplaces and the corresponding spread of technology with dual
applications have contributed to a significant increase in both
incentives and opportunities for economic espionage.

Foreign counties continue to target items in all 18 categories
of the Department of Defense Militarily Critical Technologies List.
The most sought-after critical technology categories in 1999 in
rank order were information systems, sensors, lasers, electronics,
and aeronautic systems technologies.

In addition to activities in the United States, foreign collectors
also operate against US economic interests in their respective countries
and in third countries. These activities conducted outside US territory
are more difficult to identify and counter.

The Intelligence Authorization Act for Fiscal Year 1995,
Section 809(b), Public Law 103-359 requires that the President annually
submit to Congress updated information on the threat to US industry
from foreign economic collection and industrial espionage. This report
updates the brochure Foreign Economic Collection & Industrial Espionage
Remains a Threat-Are You a Target, 1999.

The Authorization Act specifies that these annual reports
examine three aspects of the threat to US industry: the number and identity
of the foreign governments believed to be conducting industrial espionage,
the industrial sectors and types of information and technology targeted
by such espionage, and the methods used to conduct espionage.

In coordinating a community-based response to the stated requirement,
the National Counterintelligence Center (NACIC) requested the assistance
of the Intelligence Community and the private sector. The following
government components provided information for this report:

Air Force Office of Special Investigations.

Central Intelligence Agency (CIA).

Defense Intelligence Agency (DIA).

Defense Security Service.

Department of the Army.Department of Energy (DOE).

Department of State, including the Bureau of Intelligence and
Research and the Bureau of Diplomatic Security.

Federal Bureau of Investigation (FBI).

National Reconnaissance Office.

National Security Agency (NSA).

Naval Criminal Investigative Service.

US Customs Service.

In addition to information provided by the Intelligence
Community, NACIC officers also interviewed a number of industrial security
specialists from selected Fortune 500 companies, representing different
sectors of the US economy.

There are no agreed upon definitions of economic or industrial
espionage. For the purposes of this report NACIC will heed to the US
Attorney General's definition of economic espionage as "the unlawful
or clandestine targeting or acquisition of sensitive financial, trade,
or economic policy information; proprietary economic information; or
critical technologies." This definition excludes the collection
of open and legally available information that constitutes the overwhelming
majority of economic collection. Aggressive intelligence collection
that is entirely open and legal may harm US industry but is not espionage.
This, however, can help a foreign intelligence service identify and
fill information gaps, which in some cases may be a precursor to economic
espionage.

Industrial espionage is defined as activity conducted
by a foreign government or by a foreign company with direct assistance
of a foreign government against a private US company for the purpose
of obtaining commercial secrets. This definition does not extend to
activity of private entities conducted without foreign government involvement,
nor does it pertain to lawful efforts to obtain commercially useful
information, such as information available on the Internet. Although
some legal actions may be a precursor to clandestine collection, they
do not constitute industrial espionage. Some countries have a long tradition
of ties between government and industry; however, it is often not easy
to determine what is foreign government- sponsored espionage, a necessary
requirement under the Economic Espionage Act, Title 18 U.S.C., Section
1831.

Another term used in this report is proprietary technology
and economic information, the definition of which is information not
within the public domain and that which the owner has taken some measures
to protect. Generally, such information concerns US business and economic
resources, activities, research and development, policies, and critical
technologies. Although it may be unclassified, the loss of this information
could adversely affect the ability of the United States to compete in
the world marketplace and could have a detrimental effect on the US
economy, ultimately weakening national security. Commonly referred to
as "trade secrets," this information typically is protected
under both state and federal laws.

In a world that increasingly measures national power and
security in economic as well as military terms, the United States continues
to be threatened by the theft of proprietary economic information and
critical technologies. The risks to sensitive business information and
advanced technologies have dramatically increased in the post-Cold War
era as foreign governments-both former adversaries and allies-have shifted
their espionage resources away from military and political targets to
commerce. The information they seek is not simply technological data
but also financial and commercial information that will give their countries
a competitive edge in the global economy.

During the past year, foreign governments, corporations,
and individuals have continued to collect economic, technological, and
trade secret information through a variety of legal and illegal means.
The global spread of technology and the corresponding increase in the
value of trade secrets have contributed to a significant increase in
both the incentives and opportunities for conducting such activity.
Much of what these foreign rivals (and allies) seek is in the public
domain. Just as with traditional political-military espionage, however,
trends in the collection of open-source information can be important
indicators of strategic objectives that might ultimately be met by resorting
to collection methods that are not legal. This report notes such trends.

A review of reported suspected targeting incidents against
critical technologies categorized in the Department of Defense (DoD)
Militarily Critical Technologies List (MCTL), Part I: Weapons Systems
Technologies in 1999 reaffirmed that all 18 categories of critical technologies
continue to be the subject of foreign interest for military and economic
exploitation. The 18 categories are, in order of suspected targeting:
information systems; sensors and lasers; electronics; aeronautics; armaments
and energetic materials; marine systems; guidance, navigation, and vehicle;
signature control; space systems; materials; manufacturing and fabrication;
information warfare; nuclear systems technology; power systems; chemical-biological
systems; weapons effects and countermeasures; ground systems; and directed
and kinetic energy systems. In 1999 as in 1998, foreign governments
and commercially sponsored entities continued to target US companies
involved in developing weapon components, new technologies, and technical
information. Figure 1 illustrates the four categories with the highest
percentage of reported targeting and the subcategories most often reported
as being targeted in 1999. The DoD MCTL can be viewed on the Internet
at www.dtic.mil/mctl/.

Attempt To Acquire Laser Gun Sights and Potassium Cyanide

On 30 September 1999, the Department of Commerce imposed a $10,000
civil penalty on Laser Devises, Inc., a Monterey, California, exporter,
to settle allegations that the company attempted to illegally ship
laser gun sights to Taiwan. Commerce alleged that in March 1995
Laser Devices attempted to export US-origin laser gun sights to
Taiwan without the required Commerce authorizations.

On 30 September 1999, Commerce imposed a $5,000 civil penalty on
Gilbert & Jones, Inc. of New Britain to settle allegations that
the company exported potassium cyanide to Taiwan without the licenses
required by the Export Administration Regulations. Commerce's Bureau
of Export Administration alleged that on two occasions-one in 1994
and the other 1995-Gilbert & Jones, Inc., exported US-origin
potassium cyanide to Taiwan without obtaining the required export
licenses.

The extent of foreign interest in specific categories
of technology varied dramatically from country to country. Contrary
to private industry's belief, the leading-edge technologies are not
the only technologies being targeted. Countries with less developed
industrial sectors often prefer older "off-the- shelf" hardware
and software. They will also seek military technologies that are at
least a generation old because such technologies cost less, are easier
to procure, and are more suitable for integration into their military
structures.

More developed and traditional threat countries seem to
seek technical information that will enable them to disable, copy, neutralize,
or cause significant change to US military systems. By contrast, other
countries often seek command, control, and decisionmaking systems, and
information on major ground, airborne, and seaborne weapon systems,
sometimes to enhance interoperability.

Figure 2 illustrates the origins and
the associated percentages of the targeting. According to US defense
industry reporting, targeting connected to commercial and individual
foreign collectors accounted for 58 percent of the total suspicious
activity. Government-sponsored targeting, including military and other
official government activity, accounted for 22 percent of suspicious
activities. Targeting activities by government-affiliated entities -
including institutes, laboratories, and universities-accounted for another
20 percent.

The majority of the technology targeted in 1999 consisted of components
rather than complete systems. This collection trend is associated with
both developed and developing countries and seems to be driven by a
requirement to upgrade existing platforms, rather than obtain new systems.

Foreign collectors seldom use one method of collection;
they combine collection techniques into a concerted effort that includes
legal and illegal methods, while becoming more innovative in the new
millennium. Specialized training and instruction courses in business
intelligence collection methodology are becoming increasingly available.
Such courses provide instruction on how to conduct HUMINT operations,
including how to develop, create, and maintain dossiers and psychological
profiles on potential sources; exploitation and elicitation techniques;
debriefing methodologies; competitor targeting, including how to exploit
industrial conventions, seminars and meetings; and real-world practical
exercises.

In addition to traditional HUMINT recruiting strategies,
studies of economic espionage consistently identify two primary techniques
as the methods used to acquire economic intelligence:

Requesting Information Through E-Mail or Letters. Request for information
is the most often reported method of operation by foreign collectors
to obtain trade secrets, critical technologies, and sensitive and classified
information. The use of e-mail is the vehicle of choice to solicit information,
and the use of e-mail is becoming more common in countries with limited
or highly restricted public Internet access. However, use of postcards
and letters for information requests continues.

The majority of the suspicious requests reported by industry
are indirectly solicited. Requests can be linked to information available
on Internet Web sites, in advertisements, in articles in trade journals,
and in marketing materials at trade shows and seminars. The requests
range from legitimate inquiries to those clearly seeking information
that is restricted or sensitive. The inquiries may start as mundane
solicitations for price lists, catalogues, published papers, research
assistance, or for assistance in finding employment. Requests become
suspicious when they originate from embargoed countries, pose questions
that would reveal sensitive or classified information, or indicate that
the requester is trying to evade export control or security procedures.
Persistent requests from the same source also raises suspicion.

Company annual reports, patent data, corporate and government
Internet sites, and marketing materials are exploited. Open-source research
can inadvertently provide a collector with sensitive or restricted information,
or assist in further targeting efforts by identifying industry and government
relationships with specific technologies and activities. Many foreign
collectors are technically astute and diligent readers of company publications;
they attend industry conferences and trade shows; and they exploit professional
contacts through memberships in trade and professional associations.

Highly assertive collection efforts are dubbed by some
government agencies and private industry as aggressive open-source collection
or AGGROS.

Exploiting Internet Discussion Groups. The anonymity
of the Internet makes it a perfect medium for collection attempts using
e-mail, search engines, and discussion groups. One technique is the
exploitation of listserv, an e-mail-based discussion group organized
along topics of interest and open to anyone. Subscribers who join a
list may send an e-mail message to the list.The message in turn is sent
to all members of the group by the listserv, which provides subscribers
with e-mail addresses of all other members. This procedure facilitates
a discussion involving research advice on specific technical challenges,
which are permanently archived and searchable. Such exchanges can pose
a serious threat to economic and technological security for two reasons.
First, it is not uncommon for concepts, research, development, testing,
and evaluation of a technology to take place in an open or unclassified
environment. This is particularly significant when it comes to sensitive
but unclassified or dual-use technologies and proprietary information.
Second, a foreign national involved in collecting information on future
programs or in acquiring research being conducted in another country
could have an e-mail address from within the United States.

Avery Dennison: Target of Trade Secret Theft

In April 1999, two Taiwan executives and a Taiwan
company were found guilty of violating Title 18 U.S.C. Section 1832
(Theft of Trade Secrets). Pin Yen Yang, president of Four Pillars
Company, and his daughter Hwei Chen "Sally" Yang were
accused of stealing adhesive formulas and innovations from Avery
Dennison Corporation with the help of an Avery Dennison employee.
This case marks the first conviction of foreign individuals or a
foreign company that has gone to trial under the Economic Espionage
Act.

On 5 January 2000, a Youngstown, Ohio, federal judge
sentenced Pen Yen Yang to two years probation along with six months
of home detention for violating the 1996 Economic Espionage Act.
Mr. Yang's daughter was sentenced to one-year probation on the same
charge. The Yangs each faced a maximum penalty of 10 years in prison
and $250,000 in fines. Four Pillars, itself also was fined $5 million
by a US District Court for accepting the pilfered secrets.

In February 2000, a jury verdict in US District Court,
Cleveland awarded Avery Dennison at least $40 million in damages
in a civil case against Four Pillars. The judge increased the award
to $80 million.

Exploiting Multinational Conferences, Business
Information Exchanges, or Joint Ventures. International technical and
academic conferences, both home and abroad, offer an excellent venue
for foreign collectors to obtain information and to spot and assess
experts in a given field of interest. Many contractors involved with
US Government and DoD contracts attend such conferences on behalf of
their companies' commercial interests and thus can become targets of
foreign collection. There have been many instances when US participants
at international conferences have been contacted at a later date and
asked to provide information on a given technology or proprietary data.
Probing for information outside the scope of the conference is also
a common activity. Often these approaches play on cultural commonalties
as a reason to cooperate.

Misleading Open-Source Collection. Practitioners
of economic and industrial espionage may employ legal, but misleading
steps to hide a collector's true interest, affiliation, or location.
For example, a collector may use public access Internet connections
found at public libraries and educational institutions for browsing
Web sites. This type of activity can protect the collector's identity
and provide a means to "lose" the requester's individual inquiry
amongst the multitude of requests generated from the public and educational
computers. A public library presents a disarming persona, and the credibility
of an educational institution inadvertently adds a measure of legitimacy
to a request. Such misleading measures reduce the chance of a request
raising suspicions and being reported to security personnel, while increasing
the likelihood that a request will receive a response. Other misleading
techniques include routing e-mail through one or more countries to hide
the true point of origin and using contacts established through membership
in professional organizations and at conference to unwittingly broker
foreign visits or obtain the required information.

Acquisition of Export-Controlled Technologies. The unlawful acquisition
of export-controlled technologies by foreign collectors is of growing
concern. Methods of operation employed to circumvent the export-control
process include: the use front companies within the United States and
abroad, the illegal transportation of goods to an undisclosed end user
by utilizing third country cut-outs or false end-user certificates,
and the purchase of an exportable version of a product and then having
it modified during the manufacturing process to meet the specifications
of the export-controlled version. In 1999, for example, a US company
reported that it received a telephone call from an individual in New
York who wanted to purchase thousands of dollars worth of computer equipment,
under a United Nations program, for shipment to Jordan. Several minutes
into the conversation, the perspective buyer admitted that the computers
were to be transshipped from Jordan to Iraq, an embargoed country.

Theft of Trade Secrets, Critical Technologies,
and Critical Information. The theft of trade secrets, critical technologies,
and critical information knows no boundaries. As recent cases indicate-from
the insider threat, to laptop computer thefts, to hotel room intrusions
abroad-foreign entities employ a wide range of redundant and complementary
methods of operation. The perpetrators of economic and industrial espionage
include traditional foreign intelligence services, state-sponsored educational
and scientific institutions, and independent, nonstate-sponsored companies
and individuals. The increased identification of nonstate sanctioned
industrial espionage, however, should not be viewed as the demise of
traditional foreign intelligence service clandestine espionage. US businessmen
traveling abroad routinely report incidents of suspected targeting.
Their briefcases and laptop computer have been tampered with, or outright
stolen; they have reported excessive elicitation by foreign officials
at border crossing points, and their hotel rooms have been searched.

Agent Recruitment, Co-optees, and US Volunteers.
US persons with access to trade secrets, critical technologies, and
classified information are potential recruits to aid in foreign collection
operations. Some become unwitting facilitators by brokering foreign
visits, the process of using a third party to arrange visits that circumvent
official visitation procedures. In addition, foreign collectors have
enticed US experts to present papers overseas as a means to exploit
their knowledge of export-controlled information, or to facilitate their
recruitment as agents or co-optees.
Foreign intelligence services and other government-sponsored entities
continue to employ traditional clandestine espionage methods to obtain
US trade secrets, critical technologies, and critical information. These
methods include agent recruitment, US volunteers, and co-optees.

National
Counterintelligence Center
In a rapidly changing but still-hostile world, NACIC coordinates the
US Government's effort to identify and counter foreign intelligence
threats to US national and economic security. Operating under the auspices
of the National Security Council, NACIC draws it staffing from counterintelligence
and security professionals from the FBI, CIA DIA, NSA, the Office of
the Secretary of Defense, the armed services, the Department of State,
and DOE. In addition to producing the Annual Report to Congress on Foreign
Economic and Industrial Espionage, NACIC's activities include a proactive
industry outreach program. The NACIC outreach mission provides industry
with threat awareness materials (literature, posters, videotapes, and
briefings), and it sponsors regional awareness seminars and security
fairs. For information on NACIC's activities and educational materials,
visit the NACIC Internet Web site at http://www.nacic.gov.

Federal
Bureau of Investigation
The FBI's public voice for espionage, counterintelligence, counterterrorism,
as well as for economic espionage and cyber and physical infrastructure
protection, and all national security issues is the Awareness of National
Security Issues and Response Program (ANSIR)-this is the FBI's national
security awareness program. ANSIR is designed to provide unclassified
national security threat and warning information-specifically related
to foreign-sponsored or foreign-coordinated intelligence-to US corporate
security directors and executives, law enforcement, and other government
agencies. The ANSIR program focuses on the "techniques of espionage,"
giving industry representatives tangible information to help them identify
their own vulnerabilities. These techniques include the compromise of industry information
through "dumpster diving" (searching through trash and discarded
materials) where foreign intelligence services and competitors may try
to obtain corporate proprietary information. They many also include
listening devices that could be as simple as using a police scanner
used to tune in the frequency of the wireless microphone being used
in a corporate boardroom.

Each of the FBI's 56 field offices has an ANSIR coordinator
who meets regularly with industry leaders and security directors for
updates on current national security issues within their jurisdiction.
Dissemination nationwide occurs through ANSIR e-mail and ANSIR fax networks.
ANSIR fax was the first initiative by the US Government to provide 25,000
individual US corporations with critical technologies or sensitive economic
information targeted by foreign intelligence services or their agents.
ANSIR e-mail increased the capacity to over 100,000 recipients, which
is expected to accommodate every US corporation that wishes to receive
information from the FBI. Through the ANSIR program and the discussion
of techniques of espionage, corporations are able to learn from the
experiences of others enabling them to protect their commercial technologies.

US Customs Service
The US Customs Service, as the principal law enforcement agency charged
with enforcement of US international trade laws at its national borders,
is the first line of defense in preventing illicit trafficking in strategic
and controlled commodities, and in enforcing international economic
sanctions and embargoes. It is the only border agency with an extensive
air, land, and marine interdiction force and with an investigative component
supported by its own intelligence branch. Illicit trafficking in weapons
of mass destruction and their delivery systems, conventional weapons
and firearms, dual-use technology, and stolen property and trade secrets
pose serious threats to the United States, its economy, and its international
partners. The US Customs Service's Internet Web site is http://www.customs.treas.gov.

US Department
of Commerce, Bureau of Export Administration
The primary roles of the Bureau of Export Administration's (BXA) export
enforcement program are to prevent the illegal export of dual-use items;
investigate and assist in the prosecution of violators of the Export
Administration Regulations (EAR) and the Fastener Quality Act (FQA);
and inform and educate exporters, freight forwarders, and manufacturers
of their enforcement responsibilities under the EAR and FQA. Export
enforcement personnel also work closely with

the BXA's Office of Chief Counsel and the US Attorneys
Offices in bringing enforcement actions against violators of the EAR.
A list of denied persons contains information on the names and addresses
of firms and individuals denied access to US goods, in addition to the
reasons for the denial action. The BXA's Internet Wed site is http://www.bxa.doc.gov.

Overseas
Security Advisory Council
The Department of State established the Overseas Security Advisory Council
(OSAC) to foster the exchange of security-related information between
the US Government and US private sector operating abroad. Administered
by the Bureau of Diplomatic Security, OSAC has developed into a successful
joint venture for security cooperation. OSAC maintains an Internet Web
site that provides timely news items and travel warnings at http://www.ds-osac.org.

Threat
Assessment
The DOE's Office of Counterintelligence (OCI) is currently engaged in
a threat assessment on economic espionage with an emphasis on Cooperative
Research and Development Agreements (CRADAs). CRADAs are agreements
between one or more federal laboratories and one or more nonfederal
parties under which the government, through its laboratories, provides
personnel, facilities, or other resources with or without reimbursement.
As an outcome of the threat assessment, OCI will make recommendations
that will reduce the opportunities for economic espionage within the
DOE.

Department
of Defense
Within the DoD are agencies tasked with protecting technology and supporting
cleared defense contractors. Cleared defense contractors are encouraged
to contact the appropriate local representatives of these agencies:
the Defense Security Service, the Air Force Office of Special Investigations,
the Naval Criminal Investigative Service, and the Army Intelligence
and Security Command.

As long as the United States remains the world's leading
industrial power and US industry continues to lead the world in technology
development, the United States will remain a prime target of foreign
economic collection and industrial espionage. Indeed, economic collection
against the United States, including the theft of trade secrets and
competitive business information is likely to intensify in the new millennium
as the race to control scarce resources and global markets intensifies.
Not only have traditional allies and adversaries increased their economic
collection activities against the United States, but as developing countries
emerge as potential new economic competitors, they can be expected to
increase their collection efforts against US targets, as well. Traditional
allies as well as adversaries have increased and will continue to pursue
economic collection activities against the United States.

Private industry and the counterintelligence community
will continue to face the challenge of distinguishing legitimate competitive
collection activities from those whose ultimate aims are the illegal
transfer of trade secrets and critical technologies. It is the scrutiny
of open-source collection that frequently reveals other illegal activities
or intentions. Among economic collectors, malicious intentions may be
more difficult to detect, but the increasing competition for limited
global resources suggests that the problem will only increase.

Additional factors make the true extent of economic espionage difficult
to measure. Successful espionage seldom comes to light, and even when
economic espionage is discovered, companies are often reluctant to report
to authorities that they have been the victim of such activity because
of the embarrassing publicity and legal complications that may follow.
The findings of a recent survey sponsored by PricewaterhouseCoopers
indicate that Fortune 1,000 companies sustained losses in the billions
in 1999 from the theft of their proprietary information. Some of the
other key findings of this survey indicate:

The greatest known losses to US companies involve information
concerning the manufacturing processes and research and development.

The global Internet and proliferation of information systems have
significantly increased the risks to corporate proprietary information.

On-site contract employees and original equipment manufacturers
are now perceived as the greatest threat to proprietary information.

The majority of companies have not effectively met the challenge
of providing a framework for safeguarding proprietary information.

Most companies lack a mechanism and process by which to assess
the value of proprietary information.

The leading collectors of technical intelligence are most interested
in the following information: classified US defense information-information
systems, sensors and lasers, electronics, and aeronautic systems
technologies-trade information, and commercial technologies. Collection
efforts, either open-source or illegal collection are gradually
increasing.

Officers of the National Counterintelligence Center contacted
nearly a dozen selected Fortune 500 companies to obtain their views
on the problem of foreign economic collection and industrial espionage.
Following is a distillation of corporate responses to questions concerning
their experience.

Is foreign economic information collection and/or industrial
espionage a problem for your company or industry?

Yes. Each day America is driven more and more by information.
Proprietary information is the chief competitive asset, vital to both
our industry and our society. Our livelihood and our national strength
depend on our ability to protect industrial and economic data. As the
marketplace evolves and new technology is developed, information collectors
are seeking competitive information we believe is intended to be used
to gain competitive advantage over US corporations in several fields.

To what extent, if any, has your company and/or industry
experienced aggressive economic information collection or industrial
espionage by foreign entities?

Espionage can go on for years without a specific incident
to trigger the situation; therefore, it is difficult to estimate the
extent of economic information collection and/or industrial espionage
by foreign entities. The economic resources of a potential enemy and
their disposition offer it a selection of a range of possible or probable
course of action. Suspicious activity-such as using excessive Xerox
paper, reading technical manuals on a Saturday evening, wandering through
restricted areas, and aggressively recruiting employees-has been observed.

Employees-not only disgruntled employees-contractors,
consultants, and adversaries are viewed as great threats. Using today's
technology, information can be downloaded into small disks and readily
removed from the premises.

US companies' new initiative proprietary information tends
to be contained in such an electronic format making it more vulnerable
to economic espionage. Other collection techniques include:

Breaking away from tour groups.

Attempting access after normal working hours.

Different personnel appear at the last minute.

Theft of laptops.

Customs holding laptops for a period of time.

Requesting technical information.

Social gatherings.

Conferences and symposiums.

Trade shows.

Dumpster diving (searching through trash and discarded materials).

Nonencrypted Internet messages.

Who are the most active collectors?

China

Japan

Israel

France

Korea

Taiwan

India

What initiative has your company or industry taken
to counter foreign economic collection?

Senior business leaders, who have acknowledged that economic
espionage is a real problem and it may affect the bottom line, have
developed initiatives ranging from better control of physical security
and access by foreign nationals - such as limited access-being in compliance
with government contracts, and developing strong proprietary safeguards.

Although there is no absolute defense against covert attack,
being alert to the possibility of danger and adherence to reasonable
and prudent precautionary measures tend to reduce the threat. In this
effort, businesses have developed security briefings, educational pamphlets,
technical training, and on-line security information.

Are there any examples or case histories of aggressive
foreign collection or industrial espionage you would be willing to share?

In August 1999, an employee of an aerospace engineering
company approached the Security/Ethics Officer with a counterintelligence
issue related to an overseas trip to China. The employee admitted that
he had an outside business arrangement in the works with an individual
from the West Coast. Under advisement from the FBI and US Customs Service
he was asked to cooperate with his business associate. The technology
at risk was a highly sensitive infrared camera, which can be used in
missile guidance systems. The business associate was accused of violating
the US Arms Export Control Act, which regulates defense articles (military
weapons and munitions), defense services, and related technical data.

What should the US Government do to better support
the private sector in countering this threat?

The US Government should foster the development of closer
relations with the private sector, get to know the threat information
needs of business, and help prevent companies inadvertently pairing
up or doing business with those who are known to present a threat. Government
must also do a better job of understanding and identifying what the
United States must protect. In other words, identify the economic and
technological "crown jewels" that we all must protect.

Industry security specialists find it difficult to convince
their senior managers that the threat from foreign economic collection
is a real and persistent one. This often means that the necessary resources
to enhance protection and security are not allocated. They blame the
government, in part, for not showing sufficient interest in their plight.
To capture the attention of senior corporate managers and have them
allocate sufficient resources into efforts enhancing security, the US
Government should institute a more robust program to reach out to the
business community, targeting senior corporate leadership with timely,
credible, and specific information on the threat. Dated and anecdotal
information will not do. To get buy-in from senior corporate management,
government must be prepared to take some risks and share some relevant
threat information in a timely manner. This has to be part of a continuing
dialogue if there is to be partnership between government and the private
sector.

Government must gain a better understanding of how businesses
are run and the way businessmen think. There must also be a significant
effort to better educate judges, prosecutors, and government investigators
concerning business trends and techniques. This education would foster
the development of new approaches to investigations, prosecution, and
adjudication that are more responsive to the needs and limitations of
business. Businesses find that economic espionage complaints, when handled
in foreign counterintelligence investigative channels rather than criminal
investigative ones, become immediately classified and, much to the frustration
of the business involved, inaccessible.

This report is was prepared by the National Counterintelligence
Center. For more copies of this report, please contact, Chief, Analysis
Branch, 703-874-4018. Click Here
to download or view the .pdf version of this document (preferred
format for printing).